Profitable customers

Do you know what your return conversion rate is? Is it 30%, or a little bit higher around 60%?

More often than not, when I ask online marketers what their return conversion rate is, the response I receive is, “My what?”

Your return conversion rate, when tracked and truly understood, has the potential to shift your company’s culture. It’s a simple measurement that tells about your customer service, and speaks volumes about brand awareness and product offering. It’s one of the more important statistics in online marketing, yet most marketers aren’t aware of what it is.

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A simple definition of a return conversion is that a prospect visits your site, leaves without converting, and ultimately returns to your site to convert. Return conversions include new prospects who leave and return as well as existing customers who return to purchase again.

The following is a pretty basic example to illustrate what return conversions are:

You own a school supply web site; you sell items like pencils, pens, paper, notebooks, and the like. Sally visited your site last month and purchased the basic necessities for her kindergartner, Molly. Today she returned to buy construction paper for a project Molly is working on. This is a return conversion. Erica also visited your site last month to see what dinosaur school supplies you had that she could purchase for her 5-year-old son, Patrick. While Erica is shopping, Patrick was experimenting to see if he could fly, just like his favorite superhero, by jumping off the bookcase in the living room. Erica, unfortunately, was not able to complete her purchase as she had to take Patrick to the ER to make sure he hadn’t broken his arm from the fall. Once Erica and Patrick returned from the ER (with thankfully just a bruise and a lollypop) Erica was able to return to your site and complete her purchase. This is also a return conversion.

Hidden gold mine

Most marketers think of return conversions as simply getting an existing customer to come back to the site and purchase again. This is mostly done through e-mail marketing, direct mailers, and loyalty programs.

The return conversion metric is so much more than simply enticing an existing customer back to your site-this short-sighted way of understanding return conversions leaves vast room for improvement. Also, most of the energy in online marketing today is spent driving new customers to web sites.

Google is a giant not only because of its technology innovations, but because marketers view those innovations as the only way to grow their businesses-by attracting new customers, so they pump tons of cash into Google each month. But think about it. How often do first-time site visitors actually make a purchase during that initial session? Rarely, at best. The average site conversion rate, including returning and new prospects, for most e-commerce sites is 2%. More often than not, a new prospect comes to your site, looks around, and leaves. The shopper will go on to check her e-mail, probably do a bit of comparison shopping, and then possibly return to convert. These return customers are your hidden gold mine to increase your site’s conversion rate and revenue.

To show you an example of what can happen when you start to focus on your return conversions, review the following chart from Google Analytics. (The data were taken from a company we’ve worked with in the past.) The chart shows the conversion rates from April 15 through May 15 of 2008 for returning customers at 3.42%, nearly four times the 0.87% conversion rate for new customers.

In similar data from March and February 2007, the return conversion rate was 2.4%, compared to 0.69% for new prospects.

This clearly shows that return prospects convert at a higher rate than new prospects. If that is the case, why aren’t more companies focusing on return conversions, and increasing that rate? Because it isn’t easy.

Focusing on return conversions means an organization needs to stop focusing on new customers and start focusing on existing customers. We’ve lost sight of the impact return customers have.

Take Zappos, for example. MarketingSherpa published a study on why Zappos is one of the biggest successes online. Zappos initially spent a massive amount on advertisements. (Including sports stadium signage. Today it’s hard to fathom seeing a Zappos ad while watching Monday Night Football.)

In the end, the blitz didn’t create enough conversions or positive metrics to justify the campaign. What marketer hasn’t spent big bucks on a campaign, and in the end not seen a lift in sales or metrics to indicate success? Obviously Zappos needed to make a change, and what Zappos did next went beyond revising a marketing strategy.

Customer retention

Zappos chose to make customer retention one of its most important initiatives. Retention became part of its culture. The retailer provided free overnight shipping and free return shipping, and changed its inventory systems and locations-all to ensure that once Zappos acquired a customer, it wouldn’t lose that customer. Every day, 75% of purchases on Zappos.com come from returning customers. That doesn’t take into account first-time conversions from customers who may have visited Zappos previously.

If we had access to that information, I would say it’s safe to assume Zappos’s conversions consist of 75% returning customers plus a conservative estimate of 5% from people who have visited the site at least once and come back to convert.

If that were correct, only 20% of their sales on a given day were from people who visited the site once and immediately converted.

Add that to new prospects that come to its site daily, and it makes perfect sense how Zappos grew sales by $798 million in seven years.

So we agree on the importance of return conversions, and we’ve walked through how to measure them. Now let’s discuss how you can begin implementing marketing programs around them.